Buy this multibagger sugar stock for a target price of Rs 350 in 1 year

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Q3FY22 results of Triveni Engineering Ltd (TEL) according to ICICI Securities

  • TEL recorded strong profit growth on the back of higher sugar prices.
  • Sales were flat year-on-year, due to lower sugar volumes offset by higher sugar prices.
  • Earnings before interest, tax, depreciation and amortization (EBITDA) was Rs 202.8 crore, up 26.4% year-on-year, with margins of 18.2%.
  • Profit after tax (PAT) was Rs 130.1 crore, up 37.5% year-on-year, with high realization from sugar and distillery.
Top investment rationale for TEL by brokerage

Top investment rationale for TEL by brokerage

  • With the CAPEX of the distillery, TEL would be able to increase its ethanol volumes by 2.1x to 22 crore liter by FY24. Distillery sales are expected to grow at a compound annual growth rate (CAGR) of 32.8% to Rs 1285.8 crore in FY21-24E, which would account for 24% of total revenue.
  • The profitability of the sugar segment would improve with the surge in domestic and global sugar prices. We estimate sugar achievement of Rs 34-37/kg in FY22-24E.
  • The company is expected to generate Rs 1165 crore of free cash flow over the next three years, which would be used for ~Rs 400 crore capex, debt reduction, buybacks and dividends.
Buy for a target price of Rs 350 per share

Buy for a target price of Rs 350 per share

The brokerage said that “TEL’s share price has increased 3.8 times over the past five years (from Rs 74 in Feb 2017 to Rs 285 in Feb 2022). We expect a 2.1x increase in distillery volumes to grow revenue at a CAGR of 34.4% in FY21-24. We maintain our buy rating on the stock. We value the stock at Rs 350, valuing the company at 16 x FY23 PE.”

The brokerage also suggested that as an alternative multibagger sugar stock “We like Balrampur Chini in our sugar coverage. The company is the second largest and one of the most efficient sugar companies in India. With the sugarcane juice, B-heavy, it also uses grain-based ethanol to capitalize on the ethanol opportunity in India.We price the stock at Rs 500/share with a recommendation of purchase.

Warning

Warning

The security was selected in the brokerage report of ICICI Securities. Investing in stocks presents a risk of financial loss. Investors should therefore exercise caution. Greynium Information Technologies, the author, and the brokerage are not responsible for any losses caused as a result of decisions based on the article.

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